Underpinned by mill fixations and fresh buying, cotton futures have rebounded off a new six-week low near an important technical support area.
Spot December gained 65 points for the week ended Thursday to close at 83.82 cents, in the upper quarter of its five-session range from 84.09 to 82.57 cents. March rose 94 points to close at 84.95 cents.
December rallied after approaching support from 82.11 to 81.72 cents, lows set on Sept. 5 and June 3, respectively, with a double-chart bottom at 81.71 extending back to Feb. 13. It closed above its nine-day moving average for the first time since Oct. 4.
Cash grower-to-business sales quickened to a crop year high of 5,060 bales from 1,763 bales the previous week on The Seam. Prices slipped to an average of 81.11 cents from 81.96 cents, reflecting a decline to 26.44 cents from 28.53 cents in premiums over loan repayment rates. Daily price averages ranged from 80.16 to 82.02 cents.
Traders braced for batches of potential market-moving reports as USDA and other federal employees began returning to work on Thursday after Washington lawmakers reached a last-minute deal to reopen the government and avert a debt default.
The rebound in the cotton market may have been fueled partly by dollar index weakness as worries about the effects of the 16-day government shutdown on the economy – and the possibility of a rerun early next year – replaced relief over the last-minute U.S. budget deal.
Standard and PoorΆs Ratings Services estimated the government shutdown has shaved at least 0.6 percent off the nationΆs fourth-quarter gross domestic product, hurting the economy $24 billion.
The S&P action came a day after peer Fitch Ratings placed the U.S. triple-A rating on watch for downgrade. S&P rates the United States one level under triple-A after enacting a downgrade in August 2011.
If policy brinkmanship were to resurface with the risk of another shutdown, this could weigh on consumer spending, S&P said in a report, referring to lawmakers kicking the proverbial can 90 days down the road.
And consumer spending, of course, affects demand for cotton products.
Back on the nearby cotton scene, a rapid buildup of certificated stocks has contributed to DecemberΆs widening discount to March.
Some cotton taken on the July contract likely has been recertified, analysts say. They expect the stocks to grow 150,000 bales or more. But some analysts also say the fate of the December-March spread still may hinge on weather and harvest conditions in coming weeks.
Talk has circulated that the rapid buildup of the stocks may have stemmed at least partly from cancellations of export sales after the recent price retreat.
Certificated stocks reached 48,819 bales, up from 17,386 bales a week earlier and only 11,909 bales on Oct. 4. An additional 46,182 bales awaited review.
Exchange stocks often increase after about mid-October, but the U.S. harvest has lagged well behind normal. The last USDA progress report before the government shutdown showed only 7 percent off the stalk as of Sept. 29, compared with 14 percent for the five-year average.
Sentiment also may have been pressured slightly by news that ChinaΆs imports fell 27 percent in September from the previous month and 23.4 percent from a year earlier to 201,300 metric tons (924,554 bales).
Imports dropped 19.9 percent in the first nine calendar year months to 3.23 million tons (14.836 million bales), the China Cotton Association said in a report.
However, talk has circulated that China has been looking for cotton guaranteed to arrive before the expiration of December quota deadlines. China is the worldΆs largest cotton importer and consumer.
The USDA last month left its estimate of ChinaΆs 2013-14 marketing year imports unchanged at 11 million bales, down 46 percent from 20.33 million bales imported in 2012-13.
On the crop scene, heavy rains doused much of the Delta early in the week, shutting down the harvest, and widespread rains fell in the West Texas Plains last weekend. Strong yields have been reported in parts of the Delta and Southeast.
Cotton on the High Plains has matured about all the fiber it can after cold weather this month halted the process, and growers are anxious to get the crop off the stalk. Yields and quality have been encouraging, but industry sources say itΆs too early to get a firm handle on either.
Tentative private production estimates have ranged on either side of USDAΆs September forecast of 2.5 million bales for the two High Plains crop-reporting districts.
On the world supply-demand outlook, the International Cotton Advisory Committee has widened the margin by which production is expected to exceed consumption by 930,000 bales from a month ago to 9.33 million.
World production in the ICACΆs October supply-demand estimates is forecast at 117.31 million bales, down a slight 40,000 bales and the lowest in four seasons. Mill use is projected at 107.98 million bales, down 970,000 bales.
Cotton trade is projected at 39.04 million bales, down 1.38 million bales from the forecast a month ago. A decline of 4.74 million bales in imports from last season is largely because of decreased imports by China.
Ending stocks are forecast at a record 93.24 million bales, up 1.75 million on the month and from 83.92 million in 2012-13. China started buying domestic cotton last month for its national reserves, which are expected to rise to 11.4 million metric tons or 52.36 million bales, up almost 2 million tons or 9.2 million bales from last season.
With world-ending stocks outside China expected to increase by less than 200,000 tons, China will hold nearly 60 percent of the 2013-14 global carryout, ICAC said.
The ICAC cut its estimate of average world prices for 2013-14 as measured by the Cotlook A Index to 90 cents from 103 cents projected last month and an average of 88 cents last season.